When it comes to super, turning 60 brings about a significant difference. It means you can withdraw your super benefits more easily, and the majority of people can do so tax-free.
This is a significant difference from your tax situation if you withdraw your benefits before the age of 60, when some tax is normally owed on a portion of your super payment.
Omura Wealth Advisers has put up an outline of the requirements for withdrawing your benefits on or after your 60th birthday via best superannuation advice to help you comprehend what may be a complex issue. Also, you can access your superannuation when you reach the age of 65, even if you have not retired, because attaining this age is considered a condition of release. This gives you access to your benefit, which can be paid as a super pension or as a lump payment.
Related: A Comprehensive Guide to Voluntary Superannuation Contributions
Withdrawing your super benefit beyond the age of 60
The fact that you may collect your fund after the age of 60 means that your money is not only tax-free if you take it as an income stream, but it is also tax-free if you take it as a benefit payment. This implies that if you are still working or have other sources of income, your super pension payments are not included in your assessable income.
You have numerous alternatives after you meet a condition of release and have access to your super savings:
- Collect a lump sum
This is a one-time payment that allows you to withdraw some or all of your super. Taking a lump payment implies that the money is no longer in the super system, thus any return on investment will not be taxed as super savings.
This implies that the 15% tax break on investment earnings will no longer be available. Instead, outside of the super system, your investment gains are taxed at your marginal tax rate, which may be as high as 45%.
- Keep a portion or all of your savings in your account.
Even if you withdraw a lump payment, most super plans will continue to manage your remaining retirement resources. Many funds provide super pension accounts with a variety of investing alternatives. If you are happy with your present super fund, this is an option to examine.
- Start earning money (super pension or annuity)
If you choose an income stream, your super fund will send you a series of regular payments. These must be paid at least once a year and must adhere to minimum yearly payment requirements.
Consider seeking a superannuation advisor assistance from Omura Wealth Advisers when deciding whether to take a lump payment or an income stream from your super account. Taxation and superannuation are quite complicated, and receiving a lump sum may not be the best plan for you since there may be tax advantages to building a retirement income stream.
Which is better: a lump sum or an income stream?
Unfortunately, there is no simple answer to this issue because it is dependent on your individual circumstances and age.
- If you are 60 or older and choose to accept a lump sum, the majority of your benefits will be tax-free.
- If you are 60 or older and choose to accept a super pension, you will receive all of your pension payments tax-free unless you belong to one of a small number of defined benefit super funds.
You should be aware of the following critical laws regulating super revenue streams:
Transfer Balance Cap (TBC)
The TBC is the maximum amount of super funds that can be transferred into the retirement phase to pay a super pension (like an account-based pension). The TBC now stands at $1.7 million and is indexed in accordance with the Consumer Price Index. (From 1 July 2017 to 30 June 2021, the TBC was $1.6 million.)
You can start several super income streams in your retirement phase as long as you stay below the TBC, according to the super laws. All of your super income sources in retirement are covered, regardless of how many super accounts or funds you have.
Minimum pension payment requirements
If you choose to take a super pension, you must get income stream payments at least once a year, and they must be at least the government’s minimum yearly amount.
The minimum pension contribution is a fixed percentage of your account balance at the time of enrolment or on July 1 of each year thereafter. This fluctuates with age, rising as you become older.
There is no upper limit unless it is a transition-to-retirement pension that is not in the retirement phase. The maximum amount in this situation is 10% of the account balance.
Here’s everything you need to know about filing your tax return.
If you remove a lump amount from your super account after the age of 60, you will generally not need to include it in your yearly income tax return since your super fund will have paid tax on it and alerted the ATO about the withdrawal.
Except for the two exclusions indicated above, super income stream payments are tax-free after you reach the age of 60. However, you may still need to report some aspects of the income stream on your tax return.
Making a withdrawal from a defined benefit super fund
Defined benefit super funds are often big corporate or government employer super funds, and their tax laws are similar to those of other forms of super funds.
However, if you are a member of one of the few untaxed defined benefit plans or constitutionally protected funds, you will face different tax rates. These are mostly public-sector systems, such as Triple S in South Australia, and West State Super and Gold State Super in Western Australia. Unlike the majority of super funds, which pay tax on a regular basis on behalf of their members, untaxed funds and CPFs do not pay tax on contributions or gains until the member exits the fund.
What you should know: Calculating the tax applicable to the withdrawal of super benefits from an untaxed defined benefit super fund is complicated, and you should consult with your super fund or an experienced superannuation advisor, before requesting your benefit.
How do the Age Pension and Superannuation work?
Taking a lump payment or an income stream from your super account may affect your eligibility for a full or partially funded government-supported Age Pension. Your income and assets are both considered to determine if you are eligible for an Age Pension. As a result, if you have withdrawn your super payments as a lump sum or as an income stream, the funds will be considered under the asset and income requirements.
It’s a good idea to obtain advice from an independent Australian superannuation advisor before requesting to withdraw your super benefit since the way the income and asset requirements apply to super payments is complicated. You may also visit the Omura Wealth Advisers website to learn more about how super benefits are calculated under the income and asset test.